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Export Obligation Extension Under EPCG and Advance Authorisation

The EPCG scheme allows the duty-free import of capital goods/machinery to produce high-quality export items. The Government of India has implemented the EPCG scheme to boost exports.

Therefore, the Government of India is providing you with work by granting you a zero-duty import. After the new equipment has been installed, your job is to boost export sales compared to the company’s performance before the upgrade.

The government of your country has tasked you with a duty or task known as an export responsibility. There is no opting out of the export requirement imposed by the EPCG scheme. If an exporter fails to meet their export quota, DGFT might penalize them.

Export Obligation under EPCG Scheme

The Export Obligation duration of the EPCG Scheme is six years. The only way for the licensee to satisfy the Export Obligation is to ship products made with the authorized equipment overseas. It is not possible to fulfill the export quota by shipping any other products outside of those listed on the EPCG License.

Direct export, third-party export, or presumed export are all acceptable methods for satisfying the export obligation. By the 30th of April of each year, the EPCG Authorization holder must submit a hard copy report to DGFT RA detailing the previous year’s compliance with the Export Obligation.

Only when EPCG License information is included on shipping documents that include references to Advance Authorization, DFIA, MEIS, or any other reward scheme will the shipment be considered to have satisfied an export obligation.

There are two categories of Export Obligation under the EPCG Scheme: Let’s go down the many Export Obligation periods that exist.

Specific Export Obligation (SEO)

To meet the requirements of the Specific Export Obligation, an exporter has six years from the date their EPCG license was issued to export several goods which is six times the actual duty savings amount.

The Export Obligation in SEO should be fulfilled in increments:

In the first four years after a license is issued, known as the “first block,” the exporter is responsible for achieving at least half of the Export Obligation. The remaining Export Obligation must be fulfilled by the exporter in the second block, which consists of the fifth and sixth years after the license was issued.

If the Authorization holder is unable to meet the Export Obligation in full by the end of the first block, he may request an extension by paying 2 percent of composition costs on the duty saved value.

The Average Export Obligations (AEO)

The Specific Export Obligation in AEO must be met by maintaining an annual average turnover of the same and related items at the level achieved in the three fiscal years before the issuance of the license (SEO).

The DGFT expects you to keep up the same level of export performance as in the prior fiscal year as part of this mandate. Since boosting exports is a primary motivation behind the EPCG scheme, it makes sense that AEO would work to keep the average stable while SEO would work to boost exports.

Export Obligation under Advance Authorization

The Export Obligation duration of the EPCG Scheme is six years.

If the holder of an Export Authorization does not meet the Export Obligation within a 6-year grace period, the holder may request an extension of the grace period.

The DGFT Request Period

A DGFT RA can be requested by the Authorization Holder up to 90 days before the end of the Export Obligation period. Additionally, the RA grants extensions of up to 180 days for a composition charge of Rs. 5,000/-.

Concerning the Duration of the Extension

Composition fees of 5% in the first year and 10% in the second year of proportionate duty saved value depending on unfulfilled Export Obligation are charged for each one-year extension granted by the DGFT RA.

The lowest possible price for a composition is Rs. 10,000. In the event of a Ban on Export products, the Export Obligation Period will be automatically extended.

As stated in Paragraph 5.20 of the Foreign Trade Policy and Program for 2015-2020, the Export Obligation shall be automatically extended for a term equivalent to the period of the prohibition, should the export of a particular commodity be prohibited after the license has been issued. The holder of the Authorization doesn’t need to keep up the average export obligation during the suspension period.

Noncompliance with Export Obligation and Related Penalties

In cases where duty savings exceed export obligations, the DGFT RA may allow for a shortfall of up to 5% of the specific export obligation, but the average export obligation must still be 100%.

If the holder of an EPCG License does not meet his average export obligation for a particular time, he will be required to pay customs charges plus interest at the rate of fifteen percent per year. If the EPCG Licensee has met all requirements for AEO but falls short on SEO, he must pay back the difference in duty plus interest at the rate of 15% per year.

Export Requirement Waived Under EPCG Scheme

If the license holder has fulfilled 75% or more of his Specific Export Obligation in half or less than half of the export obligation term, then the DGFT has granted the benefit or advantage to the exporter. The license can be redeemed by the Authorization holder. It is not necessary to complete the remaining 25% of SEO.

Reduction in the Average Export Obligation (AEO)

If international commerce in a certain industry drops by more than 5 percent, the holder of authorization can ask the Directorate General of Foreign Trade (DGFT) to cut the AEO by the same amount, as per paragraph 5.19 of the Five-Year Trade Plan (FTP) for 2015–2020.

If the Authorization holder has an above-average export requirement in one year but a below-average export obligation in another, they may combine the two years’ worth of obligations so long as the total average export obligation is met, as per paragraph 5.19 A of the FTP 2015-2020.

Get assistance with DGFT Guru

For assistance with closing or redeeming your EPCG License with DGFT, contact DGFT Guru Consultants. We can help you with all the export obligation-related processes, as we have been doing so for over 30 years.

We serve customers all over India and pride ourselves on being world-class DGFT Consultants. All DGFT-related services, such as the MEIS scheme, EPCG, SEIS, Advance Authorization, DFIA, the RoSCTL scheme, the TMA scheme, the RoDTEP scheme, etc., are available from us.

30+ Years of Experience, dedicated team of DGFT Experts


At least six times the number of tariffs, taxes, and cess avoided on capital goods imported under the EPCG Scheme must be exported within six years after the Authorization’s issuance. Any imports authorized by an Authorization shall expire 18 months after the date of issuance of the Authorization.

The calculation of export obligation is equal to six times the duty-avoided amount. Half of your export quota must be met in the first four years and the other half in the final two years.

If AEO requirements are not met, If the License holder does not meet the export obligation requirements within the specified time frame, he will be required to pay the applicable customs charges plus interest at the rate of 15% per year.

The EPCG Scheme aims to improve India’s manufacturing competitiveness by easing the import of capital goods to produce high-quality goods and services. The benefit of the EPCG Scheme, imports of capital goods used in any production stage (including pre-and post-production) are exempt from customs fees.

The holder of an export license must apply ANF 5B as evidence that they have met their export responsibilities. Once the requirements are met, the relevant RA will give the EPCG authorization holder a certificate of discharge of export obligation and provide a copy to the customs authority with whom the BG/LUT was completed.

You or a third party can handle the export process (s). Except for presumed exports, export earnings must be realized in freely convertible currency. Until the export obligation has been fulfilled, the Actual user condition will apply to capital goods imported under the EPCG system.